On FIRE for Early Retirement!

Have you heard about the FIRE movement?  It’s been gaining steam in the backwaters of the world of internet finance blogs for years but received a major mainstream boost from this New York Times article by Steven Kurutz this week.

FIRE is an acronym that stands for Financial Independence Retire Early, and it comes with its own language developed by its devout followers.

Spending a little time on the internet and your google machine will give you countless stories of individuals pushing the money envelope to get out of the proverbial “rat race”.  Reddit message boards, blogs like Mr. Money Mustache, and the iconic books “Your Money or Your Life” and “The 4-Hour Work Week” by Vicki Robin and Tim Ferriss, respectively, are considered the bibles for the movement.

“Mr. Jensen also practices an activity that for many FIRE achievers seems to be the new golf: writing a financial advice blog.” ~Steven Kurutz, New York Times

You will run out of hours in the day before you run out of bloggers detailing their exploits in pursuing a life of lower spending and ditching the 8 to 5 grind.

The Cliffs Notes on FIRE

The major tenets of the FIRE movement are relatively simple.

  1. Like any good lifestyle makeover, identifying you have a problem is step one. Decide you have a spending problem and/or really dislike your job. It doesn’t matter what order

  2. Cut any and all discretionary spending and radically reduce your cost of living

  3. Come to grips with your new reality of being frugal

  4. Increase your savings rate to the ultimate goal of 70% of your income (that allows you to retire in less than 10 years)

  5. Continue to work until you have a substantial nest egg that can produce enough income to cover your new, lower standard of living

  6. Relocate to a more inexpensive home, neighborhood, or city

  7. Enjoy! You are now “fired”, as they say – quit your job

Once you’re “fired”, there are a few different FIRE lifestyles you could consider:

“Lean FIRE” – extreme frugality, avoid spending money on anything

“Fat FIRE” – maintain a more conventional lifestyle with savings to support it

Or, my favorite…

“barista FIRE” – working at Starbucks just for the health insurance

(these are all real terms from the New York Times article)

I know that I’m making light of a really important concept that a very large group is now fighting for, but finance is made out to be too complicated most of the time, anyway.

The FIRE movement isn’t any different than saving for a “normal” retirement.  It’s simply about deferring your gratification now to have resources in the future that won’t require your labor.  It’s just done in a very truncated period of time and requires a lot more sacrifice.

Putting some details around that 70% savings rate number adds some perspective.

A married couple making a combined $150,000 annually is going to pay an effective tax rate of about 17%, leaving them $124,500 of after-tax income.  We’ll make this simple and say they can live off of $10,000 per month.  Save 70% of that and you’re left with $3,000 to pay your rent/mortgage, utilities, health and auto/home insurance, your car payments, and buy some food.  In places like New York, San Francisco, San Diego, and Los Angeles, needless to say, $3,000 doesn’t go very far.

So that’s the crux of this whole idea.  It’s not for everyone - it requires a pretty decent income in the first place, and the ability to avoid consumption and consumerism at every turn. 

What’s your take, Jeff?

It’s easy to cast stones at the idea of FIRE.  A lot of people will consider it lazy.  A lot of older people will say “it’s just those damned millennials again. Completely out of touch with reality.”

And while I think the overall concept is a bit ludicrous, I absolutely UNDERSTAND why my generation is moving this way.

Most importantly, this is an issue of the working class being pushed a little too far.  Call it entitlement, call it laziness…but the world changed a little on us.  We’re being asked to work more hours, do more work in less time, be more efficient.  All of this while we aren’t getting paid more (read: wages are flat) and the burden of our retirements has been placed entirely on us.  Eventually, humans will fight back.  The FIRE movement, at its core, is about having control over your life.

“The whole retire early thing is unimportant to me. It’s more about gaining control of your time.  If you dive into the definition of retirement, what you’re retiring from is mandatory labor. It’s not necessarily about piña coladas on the beach.” ~Scott Rieckens, from the New York Times article How to Retire in Your 30s with $1 Million in the Bank

Do you live to work, or do you work to live?

While I do understand the movement, I do not fall into the pro-FIRE camp. It’s not healthy to consider a life of early retirement without some way to remain useful and productive.  While we don’t like to be pushed beyond our limits, humans do like to work and have a purpose.

“He’d read the news online for 30 minutes, went on a seven-mile run, took a nap and ‘watched the ceiling fan spin around for a little bit.’  He had been watching the movies from They Shoot Pictures, Don’t They? a website that ranks what it calls the 1,000 greatest films. He’d watched 600 or so. He had work to do.” ~Steven Kurutz, New York Times

Not only that, but I don’t think the economy could handle a more widespread FIRE movement.

I’ve written countless times about retiring and what it takes to become financially independent at a normal retirement age (65 or 70), and most people can’t or won’t even get on-board with that concept.  Having 30 or 40 years to save for a healthy retirement is a huge luxury and requires a lot less sacrifice than trying to do it in less than 10 years.

Go be great this week and be kind to someone who needs it most.